Breaking down the balance sheet

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Happy Friday founders and friends,

We’ve had another action-packed week so let’s get right into it…. 🚀🚀

Breaking down the balance sheet (NWC edition)

“Net Working capital is a term more frequently heard than understood."

- Every deal team on planet earth

If you have been part of any M&A deal you understand the tedious task of calculating and negotiating the dollar value of net working capital (NWC). It’s important to understand its significance and impact as failing to do so can leave you closing the deal with less 💰💰 to run the business.

At a high level; NWC (current assets - current liabilities) may seem very straightforward, but what makes calculating this figure so complicated for selling a business are the various line items that impact it and both parties’ interpretation of these items.

In a recent blog post, Matthew Hinson did a great job of breaking down its complexity 👇

Source: Calculating Working Capital

The intricacy of NWC makes it the most tedious and complicated part of closing any deal, let alone a huge pain for both parties.

TLDR; Whether you are an investor, operator, or founder, understanding the dynamics of NWC may not be critical now but most likely will be some time down the road.

Make sure to check out the following reads for a NWC deep dive:

📚 Importance of NWC in M&A

📚 Working Capital: How to Define (and Understand) It in Transactions vs. Operations

📚 Payment and Purchase Price Adjustment in M&A Deals

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What We’re Reading and Listening To…

📚 Maximising the value of private equity portfolio companies

📚 Private Equity Firms Are Cutting Out Banks and Funding LBOs Themselves

News from the Industry: deals, deals, and more deals 💰

Clearlake Capital to buy Cornerstone OnDemand Inc., a human resources management software company

Blackstone has entered into a definitive agreement to acquire a majority stake in ed-tech platform Simplilearn.

Vista Equity is considering portfolio company, Tibco, for $7 Billion

About Bloom Venture Partners

Bloom Venture Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.

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